HB1192 Passes Through Senate - One Final House Vote Before Landing on Governor's Desk

HB1192 passed through the Senate yesterday with a 18/17 vote, which means
that by only vote, the Senate passed the bill. There is only one final step
before this difficult and costly regulation could go through to the Governor's
desk for his signature, and that is to the House of Representatives, which could
happen either tomorrow or Monday.

We are managing the expectations, and
certainly do not believe this is a "fait accompli," but there's no question it
continues to be a difficult issue, especially because so many of the new
taxes/tax exemptions are being decided primarily along party lines.

On
the bright side, we are proud that we were able to work with Senator Heath, the
Governor's office, and the Department of Revenue to agree to several areas that
now WILLNOT be taxed, so even with those agreements, our industry and the users
of software will be saved from millions of dollars of additional taxes, as well
as massive administrative headaches. As a reminder, those items that will not
be taxed are included in the Legislative Declaration and include:

Would NOTtax customized software

Would NOTtax ITservicesor labor

Would NOTtax ASP-, SaaS-, or Cloud-delivered services

Does allow for a continued manufacturing exemption for software development
used on specific equipment and for specific percentage of use

Would NOTrequire all companies across the state to inventory the current
software being used by all employeesto then pay a use tax onall software not
purchased with sales tax.

We are also very proud of the now more
than 335 people who have contacted elected officials through emails, calls or
contacts. Thanks to you, more of our elected officials now understand the
damaging effects of these new taxes, and, many have changed their minds. We
also believe this initiative has awakened a somewhat quiet industry, so in the
future, we know our industry will be considered more important for our economy
as well as for considerations when other issues are
decided.

What's Next?

We encourage you to contact
members of the House of Representatives to let them know that this continues to
be a very damaging bill, and encourage them to either continue to oppose the
bill, or, if they had supported it in the past, to now oppose it.

Please
also let them know that we have offered a number of initiatives that would have
saved the state $20 million over the next year - ways to accelerate the
consolidation of ITprojects in schools, school districts, municipalities and
other state entities - to offset the projected new revenue the Department of
Revenue has suggested these new taxes would provide.

With
ITprofessionals from the private/public sectors working together, we know that
information technology solutions could save millions of dollars, and we are here
offering our help. We are disappointed that more legislators are not interested
in finding solutions for cost-cutting measures instead of new taxes, so when you
talk with Representatives, let them know we're here and ready to help.

Please thank those Senators and Representatives who have or are voting to
oppose theregulation, and thank them for their leadershipand advocacy for our
economy.

As a recap, here are just 8 reasons why this bill is so damaging to
users of technology and the software/IT industry:

1. All companies across all industries who use software would be
required to pay sales tax on all software they purchase or download, based on
the number of employees in Colorado who use the software. Imagine what
this will mean for companies who employ large numbers of people in the state?
What about companies who have operations outside of the state? Not only will it
assess tax for Colorado employers, but companies who can move projects or work
outside the state will have a legitimate andeconomic reason to do so. If your
company is a regional operation, it means you will have to assess the software
used by your Colorado employees, no matter where the software is purchased or
loaded.

2. For data centers in the state, all of the software used in the
center will now be taxed, no matter if you purchase via download or through a
licensing agreement. That's on top of the taxes you already pay for
hardware and equipment.

3. For those of you who develop software, if you have one user, no
tax. As soon as a second user is sold, your software becomes
taxable.

4.If you develop software and have identified a
potential sale as part of your exit, be very careful. The software you
develop may become taxable at the time of sale, making it harder for you to
sell.

5. The language is very confusing, but all companies in
the state will be asked to follow these regulations, even though the Department
of Revenue suggests that all communications, clarifications, and information can
be handled with only one new full-time employee (but no mention about part-time
or contracting that would be necessary, adding even more cost).

6. Colorado will become one of only 12 states in the US with such
costly taxes on software, so our neighboring states like Utah and
Wyoming are already identifying ways to encourage you to move operations or set
up additional offices. Washington, California, Florida and others have looked
at taxes like this and decided NOTto have them because of the huge consequences
for their tech industries. All together, there are nearly 40 other states who
have chosen not to enact such costly regulations - regulations that will hurt
not only software and IT companies, but all industries who utilize software and
technology.

7. If you have employees who work outside of Colorado but
come into the state for periodic work (including even just one day), your
company will have to inventory the software each visiting employee uses
in thestateand pay a tax on the software purchased after March 1,
2010.

8. Though this tax is being promoted as only a 2.9% state
tax, remember that in Colorado, local jurisdictions, counties and others add in
theirs as well, so the new tax will actually become more like 7 - 10% in
new taxes.